The fraud rate obsession harming merchants

The fraud rate obsession harming merchants

A new European fraud report from FICO reveals that card-not-present (CNP) fraud losses are contributing to the majority of fraud losses in Europe. In both the UK and Germany, it forms 70% of total card fraud losses and is expected to rise across Europe as ecommerce continues to grow.

However, fraud managers looking for a quick fix to this problem can actually do more harm than good, damaging their bottom line and customer satisfaction.

Outsourcing fraud prevention based on a fraud rate ‘guarantee’ might look appealing initially, as it suggests a guaranteed level of revenue, providing a refund on losses due to missed fraud cases. Merchants are promised a certain number of cases that will be stopped, but the problem is that the provider has to hit a certain number despite the variable threat.

Not only does this approach to fraud prevention cost a higher price, but it also offers no transparency for merchants and can actually end up costing genuine sales by triggering false positives. This happens when the fraud system prevents a genuine transaction being completed, based on supposedly suspicious data. The genuine customer cannot buy the product they want and will likely not return to the online shop, while possibly sharing their negative experience with their social networks.

Merchants using this type of anti-fraud solution also suffer from lack of transparency. Stopping fraud attempts getting through is one thing, but it’s equally important to learn what risks are being faced to help the business evolve to better manage the fraud threat.

However, not all fraud solutions are the same. We are passionate about empowering fraud managers with the knowledge and insight they need to keep their business safe. This includes technology and processes that provide an overview of the fraud patterns, profiles, country of origin and more, so that merchants can react and adapt their business strategy over time, while allowing genuine customers to shop securely.

Upsetting a customer shopping online can be irreversible and we believe that the fraud rate cannot be a parameter used to decide whether to reject a transaction. Greater transparency provides merchants with the opportunity to learn about their specific fraud problem and build relationships with customers by showing a high level of care when it comes to security, engaging with the customer to understand and improve their secure experience for future flawless visits.